Start-ups

Examples of Start-ups in the following topics:

• Inadequate or incorrect marketing, cooperation, finance, or HR strategies

  • If larger established companies really commit themselves to their junior partners and are successful, then cooperation often ends up with the senior partner taking over the start-up.
  • Start-ups in particular are often undercapitalized.
  • Start-ups must therefore be particularly careful to achieve a heterogeneous age distribution in their personnel.
  • If start-ups fail to consider these points, obstacles to growth are a matter of course.
  • If this does not happen, start-ups face a growth barrier which is hard to overcome.

• Growth through innovation

  • Times of technological change are an opportunity for start-ups to grow.
  • Certain types of innovation are especially advantageous for start-ups.
  • Disruptive technologies, on the other hand, which enable new applications for new customer segments, tend to be developed and marketed by start-ups.
  • Christensen takes the example of the computer hard drive industry to show how start-ups have very often seen successful growth over a twenty-year period as spin-offs of established firms.
  • In the next part of this chapter, we analyze the most frequent growth mistakes in start-ups.

• Inadequate or incorrect internal accounting and dependence on third parties

  • It is important that start-ups establish systems for unit cost accounting, cost center accounting, and breakeven analysis (cf.
  • Start-ups must therefore avoid this risk by establishing cost and profit accounting, and a breakeven analysis as quickly as possible.
  • Many start-up, survival, and growth strategies lead almost inevitably to the dependence of new firms on third parties.
  • In this case, the growth of the start-up is inhibited and the firm is forced to fight the opportunistic behavior of the partners.
  • If such dependencies however, endanger the success and growth of the firm, the start-up must try to extricate itself by building up its own sales or supply channels.

• Growth through cooperation

  • Several studies in the USA have proved that fast-growing start-ups sometimes use cooperation with other small firms, and sometimes with large, established firms.
  • Small biotech start-ups generally do not have the necessary complementary resources (cf.
  • Cooperation strategies are pursued more frequently where there are networks of start-ups (cf.
  • In a study of high-tech start-ups in the USA, McGee et al. (1995) showed that the start-ups which grew fastest were those which pursued cooperation strategies to build on strengths, and not to compensate for weaknesses.
  • On the contrary, a trade sale—when a start-up sells itself to another firm—can be seen as the successful end of the entrepreneurial process.

• Definition and statistics

  • We start by defining what we mean by growth and growth-oriented firms.
  • Based on a survey of all start-ups from 1999, the GEM presented the share of high-growth start-ups (see Exhibit 63).
  • Countries in comparison: Share of high-growth start-ups compared to total start-ups.

• Introduction

  • In this chapter we investigate possible strategies for the growth of start-up firms.
  • In particular we analyze the problem from the viewpoint of new start-ups which plan from the outset to grow larger quickly.
  • In the second part of the chapter we present the most well-known mistakes made by start-ups during the growth phase, and suggest ways to correct or—even better—avoid them.

• Advantages and Disadvantages of VC Financing

  • This is essential for start-ups with limited operating histories and high upfront costs.
  • The start-up company must also give up some ownership stake to the VC company investing in it.
  • VC deals also come with stipulations and restrictions in composition of the start-up's management team, employee salary and other factors.
  • Pursuing venture capital financing may not be appropriate for most start-up companies.

• Management mistakes and the incompatibility of growth strategies and organizational structure

  • The growth of start-ups must be planned, and supported by one or more of the above mentioned strategies.
  • The lack of team management and networking in the start-up and consolidation phases hinders growth, as the experience of start-ups from Silicon Valley has shown.
  • If the distribution of responsibility in the start-up is unclear, or if the same team management has been continued despite growth, problems will arise due to a lack of coordination.
  • Therefore, the distribution of competences and responsibility must be achieved, depending on the strategies the start-up pursues.
  • However, this requires a good knowledge of the industry or industries in which the start-up wishes to diversify.

• Sources of financing for your organization

  • While this is common, it can result in personal financial disaster if the start-up fails.
  • Friends and family: Asking friends and families to invest is another common way that start-ups are funded.
  • Angel investors, venture capitalists: Venture capitalists are usually not interested in start-ups.
  • As an example, here is a quote from a website describing government grants available to start-ups in the US, along with some of the reasons why the US government is allocating federal funds to private business start-ups:
  • (BusinessStartUpAssistance.com 2009)

• Advantages of Sole Proprietorships

  • The advantages of a sole proprietorship versus other forms of organizations is the relative ease of set-up and the lower start-up costs.
  • A man starting his own consulting firm as a sole proprietor would require very little capital to set up a home office to operate until sufficient funds are earned to open a larger office.
  • Limited capital is a reality for many start-ups and small businesses.
  • The costs of setting up and operating a corporation involves higher set-up fees and special forms.
  • No payroll set-up is required to pay yourself.